The role of government venture capital funds: Recent lessons from the U.K. experience

U.K. Government Venture Capital (GVC)-backed schemes have evolved to provide more effective targeted funding for high growth potential firms, but policy designers should be cognizant of the changing external financing ecosystem when designing co-investment schemes. We investigate the effectiveness of government backed venture capital schemes (GVCs) in funding early stage entrepreneurial ventures. Addressing fundamental issues of additionality, crowding out, economic impact, and sustainability, we discover that U.K. GVC-backed schemes have evolved to provide more effective targeted funding for high growth potential firms. Combining primary data from a number of sources, we discover positive impacts of increase in turnover and employment in funded ventures, along with effective targeting of specific funding gaps. Significant issues remain, including a lack of liquidity in follow-on funding and a requirement for longer time horizon in funds, as firms typically fall behind in development schedules. There is, therefore, a need for greater flexibility in GVC-backed funds. Policy designers should be cognizant of the changing external financing ecosystem when designing co-investment schemes.